Practice Quiz

CLEP Principles of Macroeconomics Exam Prep

Category - Macroeconomics

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What would happen if bond prices were to fall?
  1. The interest rates would always remain constant
  2. The interest rates would increase
  3. The interest rates would decrease
  4. The demand for money would decrease
Explanation

Answer - B - If bond prices were to fall, the interest rates would increase.

Key Takeaway: Remember that there is an inverse relationship between bond prices and the interest rate. If bond prices rise, the interest rates fall; if bond prices fall, the interest rates rise.

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Additional Answers

Daniel Stromsodt says:

the explanation should say "increase" instead of "decrease" I believe. The answer and key takeaway are still both correct.

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